As a result of the 2001 introduction of a graduated filing fee, it becomes necessary to value all reportable transactions with greater precision than was required prior to the amendments. Under the HSR rules, the value of a transaction is based upon the assets or voting securities/non-corporate interests (NCI) of the Acquired Person that the Acquiring Person will hold as a result of the transaction. Thus, for example, if an Acquiring Person who holds some voting securities/NCI of an Acquired Person purchases additional securities/NCI of the same Acquired Person, the value of that transaction will be the value of all the shares held by the Acquiring Person, not just the incremental shares most recently purchased.
The HSR rules specify different techniques for valuing transactions involving assets and voting securities/NCI, depending upon the circumstances. The following explanation provides a guide to valuation of reportable transactions under the HSR rules. The rules themselves (16 C.F.R. §§801.10 through 801.15) should be consulted for more precise guidance on valuation issues.
I. Acquisitions of assets
Under the HSR rules, the value of an asset acquisition is Fair Market Value or, if determined and greater than Fair Market Value, the Acquisition Price. Fair Market Value must be determined, in good faith, by the board of directors of the Acquiring Person, or its delegee, as of any date within 60 calendar days prior to filing, if filing is required, or within 60 days prior to closing, if filing is not required. The rules do not specify the valuation or accounting techniques to be used in making such a determination.
Acquisition Price is the total amount of consideration received by the seller(s) for acquisition of their assets. That consideration includes the assumption of any accrued liabilities by the Acquiring Person, and it includes any separate amount paid to the seller(s) for a covenant not to compete. The Acquisition Price is "determined" if the parties have agreed upon the consideration, or if the amount of consideration (e.g., by reason of post-closing adjustments or contingent future payments) can be reasonably estimated. Anticipated future payments are included at face value and cannot be discounted to present value. If the Acquisition Price is not determined, then Fair Market Value governs the value of the transaction.
II. Acquisitions of voting securities/NCI
The value of an acquisition of voting securities/NCI is the value of the voting securities/NCI that will be held as a result of the acquisition. That value depends upon whether the stock is publicly traded, and upon whether its acquisition price is determined.
If the stock is publicly traded, the value of the shares to be acquired is either Market Price or Acquisition Price, whichever is greater. For transactions subject to rule 801.30 (e.g., open market purchases, tender offers, conversions, or exercises of options or warrants) Market Price means the lowest closing quotation during the 45 calendar days prior to closing. For transactions not subject to rule 801.30 (generally, acquisitions pursuant to a contract or letter of intent), Market Price is the lowest closing quotation during that portion of the same 45-day period that begins one day before execution of the contract or letter of intent. If Acquisition Price is not determined, Market Price governs the value of the transaction. If Market Price is indeterminable because closing is more than 45 days away, and the Acquisition Price is determined, then Acquisition Price is the value of the transaction. If neither Market Price nor Acquisition Price is determined, Fair Market value determines the value.
If the stock is not publicly traded and the Acquisition Price is determined, the value of the transaction is the Acquisition Price. If the Acquisition Price is not determined, the value of the transaction is the Fair Market Value of the stock, determined by the board of directors of the Acquiring Person or its delegee, as described above.
If an Acquiring Person already holds voting securities of the Acquired Person and will acquire additional shares, the previously held shares are valued at Market Price or Fair Market Value if Market Price is indeterminable (if publicly traded) or Fair Market Value (if not publicly traded), and the additional shares to be acquired are valued in the manner described above. The value of the transaction is the sum of values of the previously held shares and the additional shares to be acquired.
For non-corporate interests (“NCI”) in a transaction that will confer control of a non-corporate entity, the value of the transaction is the Acquisition Price, if the Acquisition Price is determined. If the Acquisition Price is not determined, the value of the transaction is the Fair Market Value of the non-corporate interests, determined by the board of directors of the Acquiring Person, or its delegee, as described above.
If an Acquiring Person already holds non-corporate interests of the Acquired Person and will acquire additional non-corporate interests to confer control, the previously held non-corporate interests are valued at Fair Market Value and the additional shares are valued in the manner described above. The value of the transaction is the sum of the values of the previously held non-corporate interests and the non-corporate interests to be acquired.
III. Acquisitions of assets and voting securities/NCI
Acquisitions of both assets and voting securities/NCI are valued by separately determining (as described above) the value of the assets and the value of the voting securities/NCI that will be held as a result of the acquisition.
If an Acquiring Person holds voting securities/NCI of an Acquired Person and will acquire only assets of the same Acquired Person, the value of the previously acquired voting securities/NCI is ignored if an HSR filing was made with respect to that previous acquisition. If an Acquiring Person has previously acquired assets of an Acquired Person and will now acquire additional assets from the same Acquired Person, special valuation rules apply. See rule 801.13(b)(2).
IV. Exempt acquisitions
In general, acquisitions of assets or voting securities/NCI that are exempt from HSR Act reporting requirements are not included in the valuation of a transaction. Rule 801.15 provides technical guidance concerning which types of acquisitions result in the Acquiring Person's holding the acquired assets or voting securities/NCI for purposes of valuation.